Kolkata-based Allahabad bank recently deferred its $500-million medium-term note (MTN) programme, owing to the economic slowdown. However, the bank is hopeful of a healthy 18 per cent credit growth and expects Rs 1,000-crore capital infusion by the government soon. Chairman and managing director J P Dua, in an interview with Namrata Acharya, outlines the challenges and opportunities for the banking sector in a changed economic scenario. Edited excerpts.

What will be the impact of the slowdown in the banking sector?
Banking sector is growing at around 16-17 per cent. Credit growth till December 16 was 17 per cent. The growth in the economy has moderated. Definitely, in the banking sector, there is an impact. In sectors which were growing very fast, like infrastructure and telecom, there is a slowdown of fresh investments. One major global factor that has impacted the banking sector is exports. At Allahabad Bank, we expect credit growth to be around 18 per cent, and deposit growth at 16-17 per cent.

Which are the sectors under stress?
Four sectors — infrastructure, telecommunication, aviation and textiles — have been affected. We don’t have large exposure in aviation and telecommunication. In the infrastructure and textiles sectors, we do have exposure. So far, we have received only one restructuring proposal in textiles sector.

What will be the impact of the depreciating rupee in the banking sector? What about your MTN programme?
We have deferred the MTN plan. After few months, we will raise the money. We are expanding our operations in Hong Kong. Hence, we need resources. Some relaxation has been given by the government for mark-to-market losses, so that is a welcome step. A good number of importer have hedged.

What are your overseas expansion plans?
We are planning to open branch in Dhaka, Shanghai, Singapore and Kowloon.

What are your domestic fund raising plans?
Right now, our CRAR is around 13 per cent, with the headroom of raising Rs 4,700 crore. We have also approached government for Rs 1,000 crore of additional capital. We have received a communication that it is under its active consideration.

Do you think the government will infuse capital by way of equity?
Yes, may be by way of preferential equity. We don’t know yet.

By how much would the government’s stake in the bank rise, if the capital infusion is through equity?
Right now the government’s stake is 58 per cent, so it may go up.

Please throw some light on the operations of All Bank Finance?
It had been a dormant company for quite some time. We recently restructured the company, appointed a new board, and we are opening a branch in New Delhi by the end of January. We are going for syndication, viability study, fund raising, merchant banking and trusteeship activity.

What is your outlook for net interest margin for the bank?
Last quarter we had a NIM of 3.68 per cent. For the whole year, we have given a guidance of three per cent plus.

When can we see a reversal in the interest rate cycle? Are you planning to cut interest rates?
We are now getting the first signs that food inflation is coming down. Once it starts coming down, it would impact on interest rate. By the second quarter, rates should start coming down. Right now, costs have not come down, so there is no reason to cut rates.

'By second quarter, rates should start coming down': J P dua

Interview with CMD, Allahabad bank

Kolkata-based Allahabad bank recently deferred its $500-million medium-term note (MTN) programme, owing to the economic slowdown. However, the bank is hopeful of a healthy 18 per cent credit growth and expects Rs 1,000-crore capital infusion by the government soon. Chairman and managing director J P Dua, in an interview with Namrata Acharya, outlines the challenges and opportunities for the banking sector in a changed economic scenario. Edited excerpts.

Kolkata-based Allahabad bank recently deferred its $500-million medium-term note (MTN) programme, owing to the economic slowdown. However, the bank is hopeful of a healthy 18 per cent credit growth and expects Rs 1,000-crore capital infusion by the government soon. Chairman and managing director J P Dua, in an interview with Namrata Acharya, outlines the challenges and opportunities for the banking sector in a changed economic scenario. Edited excerpts.

What will be the impact of the slowdown in the banking sector?
Banking sector is growing at around 16-17 per cent. Credit growth till December 16 was 17 per cent. The growth in the economy has moderated. Definitely, in the banking sector, there is an impact. In sectors which were growing very fast, like infrastructure and telecom, there is a slowdown of fresh investments. One major global factor that has impacted the banking sector is exports. At Allahabad Bank, we expect credit growth to be around 18 per cent, and deposit growth at 16-17 per cent.

Which are the sectors under stress?
Four sectors — infrastructure, telecommunication, aviation and textiles — have been affected. We don’t have large exposure in aviation and telecommunication. In the infrastructure and textiles sectors, we do have exposure. So far, we have received only one restructuring proposal in textiles sector.

What will be the impact of the depreciating rupee in the banking sector? What about your MTN programme?
We have deferred the MTN plan. After few months, we will raise the money. We are expanding our operations in Hong Kong. Hence, we need resources. Some relaxation has been given by the government for mark-to-market losses, so that is a welcome step. A good number of importer have hedged.

What are your overseas expansion plans?
We are planning to open branch in Dhaka, Shanghai, Singapore and Kowloon.

What are your domestic fund raising plans?
Right now, our CRAR is around 13 per cent, with the headroom of raising Rs 4,700 crore. We have also approached government for Rs 1,000 crore of additional capital. We have received a communication that it is under its active consideration.

Do you think the government will infuse capital by way of equity?
Yes, may be by way of preferential equity. We don’t know yet.

By how much would the government’s stake in the bank rise, if the capital infusion is through equity?
Right now the government’s stake is 58 per cent, so it may go up.

Please throw some light on the operations of All Bank Finance?
It had been a dormant company for quite some time. We recently restructured the company, appointed a new board, and we are opening a branch in New Delhi by the end of January. We are going for syndication, viability study, fund raising, merchant banking and trusteeship activity.

What is your outlook for net interest margin for the bank?
Last quarter we had a NIM of 3.68 per cent. For the whole year, we have given a guidance of three per cent plus.

When can we see a reversal in the interest rate cycle? Are you planning to cut interest rates?
We are now getting the first signs that food inflation is coming down. Once it starts coming down, it would impact on interest rate. By the second quarter, rates should start coming down. Right now, costs have not come down, so there is no reason to cut rates.